§ 1.7 Mistake

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 1.7 Mistake

South Carolina courts will reform a contract on the ground of mistake when the mistake is mutual and consists of the omission or insertion of some material element that affects the subject matter of terms and stipulations of the contract, inconsistent with those of the parol agreement that necessarily preceded it.⁸⁴ "'A mistake is mutual where both parties intended a certain thing and by mistake in the drafting did not obtain what was intended.'"⁸⁵ The existence of a mutual mistake must be shown by clear and convincing evidence before equity will reform the contract.⁸⁶ "'Reformation is the remedy by which writings are rectified to conform to the actual agreement of the parties.'"⁸⁷ A suit for reformation will stand on its own peculiar facts.⁸⁸ If reformation unfairly affects the rights of innocent third parties, a court may decline to impose reformation.⁸⁹ "A court of equity may reform a contract where the mistake is . . . unilateral and has been induced by the fraud, deceit, misrepresentation, concealment of imposition in any form of the party opposed in interest to the reformation without negligence on the part of the party claiming the right, or where the mistake is accompanied by very strong and extraordinary circumstances showing imbecility or something which would make it a great wrong to enforce the agreement."⁹⁰

The Supreme Court of South Carolina determined that mutual mistake existed such that the policy at issue in George v. Empire Fire & Marine Insurance Company⁹¹ would be formed. The insured used car dealership loaned its customer a vehicle while hers was being repaired at the dealership. The customer had a head-on collision with another vehicle and the customer and the occupants of the other vehicle died as a result of the accident.⁹² The personal representative for the occupants of the other vehicle brought a declaratory judgment action against the insurer, the insured used car dealership, and the customer's estate seeking a declaration that the policy afforded coverage in the amount of $1 million or that the policy should be reformed to provide such coverage.⁹³

In determining that the policy should be reformed, the Court considered the language of the policies as well as the relevant deposition testimony to determine whether there was a material issue of fact regarding mutual mistake. The Court explained the testimony showed that the insured's owner "made it clear that he intended customers such as [the customer] to be fully covered by the liability policy."⁹⁴ The insured's owner also testified that he was assured by the insurer's agents that the customer would be covered for $1 million and that he would be getting the same coverage that he had before, which did not limit liability in any way for the insured's customers.⁹⁵ Further, the agent testified he knew what type of insurance the insured had before and knew the insured wanted to increase its coverage limits.⁹⁶ Based on the evidence in the case, the Court found the evidence was clear and convincing of mutual mistake, which required reformation of the policy.⁹⁷

The Fourth Circuit Court of Appeals addressed whether a policy would afford coverage for property that had not been properly described in the insurance application...